Emerging Asian currencies were mostly lower against a resilient dollar and stock markets weaker on Thursday, as investors continued to focus on the Federal Reserve's rate cut path in a holiday-thinned trading week.
The South Korean won, which is among the worst performing Asian currencies this year amid domestic political turmoil and U.S. President-elect Donald Trump's tariff threats, fell as much as 0.6% to it lowest level since March 2009.
The Thai baht fell 0.3% and China's yuan hovered near a 13-month low, not far from the psychologically important 7.3 per dollar mark.
The Indian rupee dropped to a lifetime low. Poon Panichpibool, a markets strategist at Krung Thai Bank said the impact of Trump 2.0 policies could support the U.S. economy and keep the dollar strong under the "U.S. exceptionalism" theme, exerting more selling pressures on EM assets.
The won, baht and Malaysian ringgit are considered more vulnerable to Trump's policies because of the countries' export-driven economies and sensitivity to China's growth.
Panichpibool added that the Fed's policy rate outlook was also significant because of its potential impact on Asian central banks' monetary policy decisions and rate differentials between the currencies.
Last week, Fed policymakers lowered their rate cut projections for 2025 to 50 basis points from 100 basis points, and raised their inflation forecast.
Markets are now pricing in only about 35 basis points of easing for 2025, which sent U.S. Treasury yields surging, and the dollar near a two-year peak. Higher U.S. rates could create problems for emerging markets, including capital outflows, currency weakness, inflation and volatility.
The central banks in Indonesia, Thailand, and Taiwan kept rates steady last week to address currency and global economic uncertainty concerns, while the Bangko Sentral ng Pilipinas cut rates.
Among other currencies, the Philippine peso rose 1.1% and was on track for its best day since November 2023.
The ringgit, the only Asian currency to log a yearly gain this year, rose 0.4%. Equities in Kuala Lumpur gained 0.5%, while those in Manila, Singapore and Bangkok lost between 0.1% and 0.2%.
Markets in Indonesia were closed for a holiday.
HIGHLIGHTS:
** China approves value-added tax law
** South Korea's Constitutional Court to hold first hearing on Friday to decide impeached president's fate
** Japan says its economy likely to mark first positive output gap in 7 years - Reuters
